Autumn Statement 2023: review of small pension pots

Autumn Statement 2023: review of small pension pots

Nov 29, 2023

The government is considering plans to consolidate small pension pots into a ‘pot for life’ and give individuals the option to designate a primary pension scheme for savings

A plan for a single pension pot is at the early stages with government talking to major pension providers about how this could work. At the moment millions of people have multiple small pot pensions, with an estimated £26.6bn in lost pensions, according to the Pensions Policy Institute.

Gareth Henty, pensions partner at PwC said: ‘Giving pension savers the ability to nominate a “pot for life” will eradicate the problem of individuals building up multiple small inefficient pension accounts over the duration of their working life.

‘Employees will be given a legal right to require a new employer to pay contributions into their existing pension making it easier to keep track of how their pension is growing.’

The new system would be comparable to Australia’s superannuation system.

The idea is to introduce the consolidation of pensions to enable a small number of authorised schemes to act as a consolidator for pension pots under £1,000.

Glenn Collins, head of technical engagement at ACCA, said: ‘ACCA welcomes the interesting proposal that employees can request employers now pay into an existing pension pot of their (the employees) choosing, however it should be executed in a way that minimises administrative burdens and complexity for business.’

Paul Kitson, EY UK pensions consulting leader said: ‘To address the challenge of “small pot” pensions, the government is launching a consultation to debate a ‘lifetime provider’ model, which would allow individuals to keep their existing defined contribution (DC) pension scheme when they change employers.

‘While a simpler process for the employee, this may significantly disrupt the current workplace pensions model if there are not careful changes made to the current ecosystem.’

For some the new scheme is not a step in the right direction and could create major disruption.

Laura Myers, head of defined contributions at LCP said: ‘The current system delivers high quality and low-cost workplace pensions to millions of workers, and these proposals risk undermining that system.

‘At present, employers act on behalf of their entire workforce, benefiting from competition from pension providers, and negotiating a good deal for high and low earners alike.

‘In a pot for life system the pensions industry will inevitably seek to cherry pick higher earners while ordinary savers get left behind.’

The government also confirmed the abolition of the pensions lifetime allowance (LTA) will go ahead as planned from 6 April 2024, following the announcement in the March Budget earlier this year. The LTA is fixed at £1,073,000 in 2023-24 and the maximum tax-free cash lump sum is frozen at £268,275.

Chris Hudson, managing director retail intermediary at Standard Life said: ‘The removal of the LTA by April next year still has a number of logistical challenges that need to be worked through and people with funds above the previous LTA or protected level will be seeking to engage with their advisers or sourcing one very soon to assess the potential impact of future changes.’